|Amid dire warnings of
“disaster” if Congress doesn’t approve the $700 billion
bailout of Wall Street, folksy billionaire Warren Buffett
offered up his own plan.
He wants the government and private investors to go in
together on the toxic-debt purchases.
Instead of buying the debts outright, Treasury would lend
investors 80 percent of the cost of buying up the distressed
"Now you have someone with 20 percent skin in the game,"
Buffett said in a speech, reported by CNN.
"Believe me, I won't be overpaying if I'm buying with that
kind of leverage. And you have someone [the investors] to
manage the assets to the extent they need to be managed."
Investors would get to borrow at Treasury rates, which are
lower, and the taxpayers would be in first position on the
loan, so any future sale would benefit them first, followed by
Buyout expert Wilbur Ross offered up a similar idea on CNBC
a day earlier, suggesting private insurers cover the new
assets to bolster private demand.
Ross fears banks will take the $700 billion and simply
apply it to their balance sheet, leaving borrowers — and
especially potential home buyers — out in the cold.
“The banks have lost around $130 billion more capital than
they raised through the write-offs of lost capital,” reducing
lending capability by about $1.5 trillion, Ross says.
“So this is $700 billion of that coming back. I would have
preferred some assurance that that money got redeployed into
mortgages, and as far as I can tell, there is no actual
“It may well strengthen the banks’ balance sheets, but it
may not solve the mortgage crisis. I think that’s what we need
to deal with,” Ross says.